<PAGE> 1
FORM 10-QSB
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997
Commission File Number: 0-17449
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PROCYON CORPORATION
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(Name of Small Business Issuer as specified in its charter)
COLORADO
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(State or Other Jurisdiction of Incorporation or Organization)
36-0732690
------------------------------------
(IRS Employer Identification Number)
1150 Cleveland Street, Suite 410
Clearwater, Fl 34615
--------------------------------
(Address of Principal Offices)
(813) 447-2998
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark wether the registrant has (1) filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for shorter period than the registrant was
required to file such reports), and (2) been subject to such filing
requirements for the past 90 days.
YES X NO
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Common Stock No Par Value
-------------------------
(Class)
3,637,920 Shares of Common Stock Outstanding as of November 13, 1997
<PAGE> 2
PROCYON CORPORATION
Table of Contents
Page No.
--------
Part I Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statement of Income (Loss) 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Part II Other Information 14
<PAGE> 3
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents $157,019 $335,121
Accounts Receivable, less allowances
of $24,000 for doubtful accounts 61,473 55,555
Inventories 60,146 72,357
Subscriptions Receivable 0 41,000
Prepaid Expenses 4,878 4,378
---------- ----------
Total Current Assets 283,516 508,411
---------- ----------
Machinery and Equipment less accumulated depreciation
of $22,018 and $19,669 28,819 31,168
Other Assets:
Deposits 1,267 1,267
Employee Advances 39,000 34,500
---------- ----------
Total Other Assets 40,267 35,767
---------- ----------
Total Assets $352,602 $575,346
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts Payable and $ 32,827 $ 60,293
Accrued expenses 35,660 38,472
---------- ----------
Total Current Liabilities 68,487 98,765
Commitments and Contingencies
Stockholders' equity (Notes 1 & 5)
Preferred stock, 496,000 shares authorized, none issued
Series A Cumulative Convertible Preferred stock, no par
value; 4,000,000 shares authorized; 2,065,000 shares
issued and outstanding 2,058,950 1,997,850
Common Stock, no par value, 80,000,000 shares authorized;
3,637,920 shares issued and outstanding 724,196 724,196
Accumulated deficit (2,499,031) (2,245,465)
---------- ----------
Total Stockholders' Equity 284,115 476,581
---------- ----------
Total Liabilities & Stockholders' Equity $352,602 $575,346
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Net Sales $ 87,056 $ 32,231
Cost of Sales 25,271 8,876
--------- ---------
Gross Profit 61,785 23,355
Operating Expenses:
Salaries and Benefits 164,825 103,418
Selling, General and Administrative 149,849 90,519
--------- ---------
Total Operating Expenses 314,674 193,937
--------- ---------
Loss from Operations (252,889) (170,582)
Other Income (Expense):
Interest Expense (4,466) (2,539)
Interest Income 3,789 2,431
--------- ---------
Total Other Income (expense) (677) (108)
--------- ---------
Net Loss (253,566) (170,690)
Dividend requirements on preferred stock 51,524 33,875
--------- ---------
Loss applicable to common stock $(305,090) $(204,565)
========= =========
Net Loss per common share $ 0.08 $ 0.06
========= =========
Weighted average number of common shares outstanding 3,637,920 3,637,920
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
PROCYON CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended September 30, 1997 and 1996
Cash Flows From/(Used In)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash Flows From/(Used In) Operating Activities
Net Loss (253,566) (170,690)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 2,349 2,349
Changes in operating assets and liabilities
Accounts Receivable, trade (5,918) (6,588)
Inventories 12,211 7,377
Prepaid Expenses (500) (2,035)
Accounts payable and accrued expenses (30,278) (9,332)
-------- --------
Cash used in Operating Activities (275,702) (178,919)
-------- --------
Cash Flows From/(Used In) Investing Activities
Purchases of machinery and equipment -- --
Advances to employees and stockholders (4,500) (10,269)
Payment for Deposit -- --
-------- --------
Cash used in investing activities (4,500) (10,269)
-------- --------
Financing Activities
Proceeds from subscriptions receivable 41,000
Proceeds from issuance of Series A Cumulative
Convertible Preferred Stock 61,100 96,700
-------- --------
Cash provided by financing activities 102,100 96,700
-------- --------
Net Increase (decrease) in cash and cash equivalents (178,102) (92,488)
Cash and Cash Equivalents, beginning of period 335,121 290,007
-------- --------
Cash and Cash Equivalents, end of period 157,019 197,519
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
Organization Procyon Corporation (the "Company"), a Colorado
and Business corporation, was incorporated on March 19, 1987.
Through May 9, 1996, the Company had been considered a
development stage company as it continued to identify
and evaluate merger or acquisition candidates for
purposes of engaging in its business activity. As a
result of the acquisition of Amerx Health Care Corp.
("Amerx") discussed in Note 2, the Company is no
longer considered to be in the development stage.
As described in Note 1, effective May 9, 1996, the
Company acquired 100 percent of the issued and
outstanding common stock of Amerx, a
commonly-controlled company. The acquisition was
accounted for in a manner similar to a
pooling-of-interest and, accordingly, the Company's
financial statements have been presented to include
the results of Amerx as through the acquisition
occurred as of July 1, 1994.
The Company manufactures and markets wound care and
skin care products primarily in the United States and
is actively seeking foreign market distribution.
Basis of The consolidated financial statements include the
Presentation and accounts of Procyon Corporation and its wholly owned
Principles of subsidiary, Amerx, acquired during 1996 as discussed
Consolidation in Note 1. All material intercompany accounts and
transactions are eliminated.
Effective May 9, 1996, the Company effected a five
for one reverse split of its then issued and
outstanding common stock in anticipation of its
acquisition of Amerx. All share and per share
information in the accompanying financial statements
has been retroactively restated to reflect the
reverse stock split.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
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<PAGE> 7
Concentrations of Financial instruments which potentially subject the
Credit Risk Company to concentrations of credit risk consist
primarily of cash, cash equivalents and accounts
receivable. The Company places its cash and cash
equivalents in what it considers to be highly- rated
financial institutions and while at times such
amounts may exceed federally insured limits, the
Company has not experienced any losses from such
amounts. Concentrations of credit risk with respect
to accounts receivable are limited due to a broad
customer base and generally short payment terms.
Cash Equivalents For the purpose of the Statements of cash flows, the
Company considers cash-on-hand, demand deposits in
banks and highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
Inventories Inventories are valued at the lower of weighted
Machinery and average cost or market. Machinery and equipment are
Equipment stated at cost. Depreciation is computed on
straight-line basis over the estimated useful lives
of the assets of five years.
Revenue Revenue is recognized upon the shipment of finished
Recognition merchandise to customers.
Income Taxes The Company accounts for income taxes under Statement
of Financial Accounting Standards No. 109 ("SFAS No.
109"). Temporary differences are differences between
the tax basis of assets and liabilities and their
reported amounts in the financial statements that
will result in taxable or deductible amounts in
future years.
Net Loss Net loss per share is based on the weighted average
Per Share number of shares outstanding during each period
presented. Outstanding stock rights are included as
common stock equivalents, when dilutive.
Recent The Financial Accounting Standards Board ("FASB")
Accounting recently issued Statement of Financial Accounting
Pronouncements Standards No. 128 "Earnings Per Share" ("SFAS 128")
and Statement of Financial Accounting Standards No.
129 "Disclosure of Information About and Entity's
Capital Structure ("SFAS 129"). SFAS 128 provides a
different method of calculating earnings per share
than is currently used in accordance with Accounting
Board Opinion ("APB") No. 15 "Earnings Per Share."
SFAS 128 provides the calculation of "Basic" and
"Diluted" earnings per share. Basic earnings per share
includes no dilution and is computed by dividing
income available to common stockholders by the
weighted average number of common shares outstanding
for the period. Diluted earning per share reflects the
potential dilution of securities that could share in
the earnings of an entity, similar to fully diluted
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<PAGE> 8
earnings per share. SFAS 129 establishes standards for
disclosing information about an entity's capital
structure. SFAS 128 and SFAS 129 are effective for
financial statements issued for periods ending after
December 15, 1997. Their implementation is not
expected to have a material effect on the consolidated
financial statements.
In June 1997, FASB issued Statement of Financial
Accounting Standard No. 130 "Reporting Comprehensive
Income ("SFAS 130") and Statement of Financial
Accounting Standard No. 131 "Disclosure about
Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 130 establishes standards for
reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive
income is defined to include all changes in equity
except those resulting from investments by owners and
distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to
be recognized under current accounting standards as
components of comprehensive income be reported in a
financial statement that displays with the same
prominence as other financial statements. SFAS 131
supersedes Statement of Financial Accounting Standard
No. 14 "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards
of the way that public companies report information
about operating segments in annual financial
statements and requires reporting of selected
information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding
products and services, geographic areas and major
customers. SFAS 131 defines operating segments as
components of a company about which separate
financial information is available that is evaluated
regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing
performance.
SFAS 130 and SFAS 131 are effective for financial
statements for periods beginning after December 15,
1997 and require comparative information for earlier
years to be restated. Because of the recent issuance
of these standards, management has been unable to
fully evaluate the impact, if any, the standards may
have on future financial statement disclosures.
Results of operations and financial position,
however, will be unaffected.
-8-
<PAGE> 9
1. Acquisition On January 31, 1997, the Company entered into an
Agreement and Plan of Exchange (the "Agreement") with
Amerx. The Agreement provides that the Company
acquire Amerx through a share exchange in which all
of the issued and outstanding common stock of Amerx
was exchanged for 3,000,000 (post-split) shares of
common stock of the Company (the "Exchange"). The
Agreement provides, as a condition of the Exchange,
that the Company complete a five for one reverse
split of its issued and outstanding shares of common
stock. The president and majority stockholder of the
Company was the sole stockholder of Amerx prior to
the Exchange which was completed effective May 9,
1996.
Considering the nature of the relationship between
the Company and Amerx, the transaction is considered
to be an exchange between enterprises under common
control and accordingly, it has been accounted for at
historical cost in a manner similar to that in
pooling-of-interests accounting with the accompanying
financial statements presented to include the
accounts and operations of the acquired company as
though the acquisition had occurred as of July 1,
1994.
2. Inventories Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30 June 30,
1997 1997
---- ----
<S> <C> <C>
Finished Goods $ 18,827 $ 20,422
Raw Materials $ 41,319 $ 51,935
-------- --------
$ 60,146 $ 72,357
======== ========
</TABLE>
3. Related Party During fiscal 1995, the majority stockholder of the
Transactions Company advanced $348,363 to the Company which was
used to fund operations and an investment in a
certificate of deposit. Effective July 1, 1995, the
stockholder contributed $117,500 of the advance plus
accrued interest of $15,500 into capital which was
accounted for as part of the Exchange discussed in
Note 1. The remainder of the advances were repaid
during fiscal 1996.
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<PAGE> 10
4. Commitments Operating Leases
And
Contingencies The Company leases office space and certain equipment
under operating leases expiring at various dates
through 2001. Rent expense under these agreements
was approximately $34,900 and $32,600 for the years
ended June 30, 1997 and 1996. Future minimum rentals
under the operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
<S> <C>
1998 $33,600
1999 6,800
2000 4,300
2001 4,300
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$49,000
=======
</TABLE>
5. Stockholder's During January 1995, the Company's Board of Directors
Equity authorized the issuance of Equity issuance of up to
4,000,000 shares of Series A Cumulative Convertible
Preferred Stock ("Series A Preferred Stock"). As of
June 30, 1997 and 1996, the Company had preferred
stock sales resulting in subscriptions receivable of
$41,000 and $96,700. Such receivables were collected
in July of the subsequent fiscal year. The preferred
stockholders are entitled to receive, as and if
declared by the board of directors, quarterly
dividends at an annual rate of $.10 per share of
Series A Preferred Stock per annum. Dividends will
accrue without interest and will be cumulative from
the date of issuance of the Series A Preferred Stock
and will be payable quarterly in arrears in cash or
publicly traded common stock when and if declared by
the board of directors. As of September 30, 1997, no
dividends have been declared. Dividends in arrears
on the outstanding preferred shares total $266,279 as
of September 30, 1997. The preferred stockholders
have the right to convert each share of Series A
Preferred Stock into one share of the Company's
common stock at any time without additional
consideration. However, each share of Series A
Preferred Stock is subject to mandatory conversion
into one share of common stock of the Company,
effective as of the close of a public offering of the
Company's common stock provided, however, that the
offering must provide a minimum of $1 million in
gross proceeds to the Company and the initial
offering price of such common stock must be at least
$1 per share. In addition to the rights described
above, the holders of the Series A Preferred Stock
will have equal voting rights as the common
stockholders based upon the number of shares of
common stock into which the Series A Preferred Stock
is convertible. The Company is obligated to reserve
an adequate number of shares of its common stock to
satisfy the conversion of all the outstanding Series
A Preferred Stock.
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<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
From 1990 through May 1996, the Company had minimal operations
and was considered to be a development stage company. During
such time, the Company incurred nominal expenses and its
revenues consisted entirely of interest income. In May 1996,
the Company completed its acquisition of Amerx. The
acquisition was accounted for in a manner similar to a
pooling-of-interest since both companies were under common
control and, accordingly, the Company's financial statements
include the Amerx operating results as though the acquisition
was completed on July 1, 1994. Beginning July 1, 1994 the
Company's financial statements for fiscal years 1995 and 1996
and 1997 reflect the operating results and financial condition
of Amerx.
Liquidity and Capital Resources
As of September 30, 1997, the Company's principal sources of
liquidity included cash and cash equivalents of approximately
$157,019 and net accounts receivable of $61,473. The Company
had net working capital of $218,492 and no long term debt at
September 30, 1997.
During the quarter ended September 30, 1997, cash and cash
equivalents decreased from $335,121 as of June 30, 1997 to
$157,019. Operating activities used cash of $201,622 during
the quarter, consisting primarily of a net loss of $253,566.
Advances against commissions to shareholders and employees of
$4,500 were made and reflected as cash used in investing
activities.
At September 30, 1997 the Company had no commitments for
capital expenditures.
The Company has deferred tax assets with a 100% valuation
allowance at September 30, 1997. Management is not able to
determine if it is more likely than not that the deferred tax
assets will be realized.
The Company has incurred losses since its inception and is
dependent upon equity financing to fund working capital needs.
The Company has made progress in the
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<PAGE> 12
past quarter as evidenced in increased sales and lower losses.
Management's plans include continuing to attempt to increase
sales volumes and related production efficiencies to meet its
overhead and cash flow requirements. The plan to increase sales
is more clearly referred to in the following discussion of the
results of operations.
Results of Operations
Comparison of Three Months Ended September 30, 1997 and 1996.
Net sales during the quarter ended September 30, 1997 were
$87,056 as compared to $32,231 in the quarter ended September
30, 1997, and increase of $54,825, or 70%. The increase in
sales quarter to quarter was primarily attributable to the
Company's sales to the Wal-Mart retail chain. The Company
expanded shipment to a limited number of the chain's stores in
Florida through the Company's retail distributor. The Company
has begun discussions with regional management of three
additional national chains into whose regions the products may
be introduced during the next business quarter. The Company did
not expand its base of institutional distributors during the
quarter and will continue to refrain from doing so until such
time as it receives a Medicare reimbursement code for certain
of its products. However, institutional sales showed
improvement during the quarter. Management believes this
improvement resulted from satisfied user facilities and
continued sales efforts despite lack of billing code.
The Company received a 510(K) clearance for its Amerigel(TM)
Ointment Wound Dressing that allows for expanded usage
indications. Management believes the expanded indications will
support its efforts to gain a Medicare reimbursement code and
management is hopeful that the approval will come during the
next quarter. There can be no assurance that the Company will
succeed in its effort to qualify any of its products for
reimbursement. When a code is received, management believes
its sales will improve significantly.
The Company did embark on a select market advertising campaign
concomitant to the introduction of its products into the chain
store mentioned above. The radio advertising has been
successful thus far and management expects that the program
will continue during the next quarter.
Gross profit during the quarter ended September 30, 1997, was
$ 61,785 as compared to $ 23,355 during the quarter ended
September 30, 1996, an increase of $ 38,430, or 164%. As a
percentage of net sales, gross profit was 71% in the quarter
ended September 30, 1997, as compared to 72% in the
corresponding quarter in 1996. The $ 38,430 increase in gross
profit reflects the significant increase in net sales
experienced during this quarter.
Operating expenses during the quarter ended September 30, 1997
were $ 314,674, consisting of $164,825 in salaries and
benefits and $ 149,849 in selling, general and administrative
expenses. This compares to operating expenses during the
quarter
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<PAGE> 13
ended September 30, 1996 of $193,937 consisting of $103,416 in
salaries and benefits, and $90,519 in selling, general and
administrative expenses. The Company expects expenses to rise
somewhat as sales increase over the remainder of the fiscal
year.
The Company incurred an operating loss of $252,566 in the
quarter ended September 30, 1997 as compared to an operating
loss of $170,690 in the corresponding quarter in 1996. The
increase in operating loss was primarily due to the increase in
advertising, and the hire of new sales reps. Net loss (after
dividend requirements for Preferred Shares) was $305,090 during
the quarter ended September 30, 1997 as compared to $204,565
during the quarter ended September 30, 1996.
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<PAGE> 14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable.
Item 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
Not Applicable.
Item 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS
Exhibit 27 Financial Data Schedule.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
PROCYON CORPORATION
(Registrant)
November 18, 1997 /s/ John C. Anderson
- ----------------- ---------------------------
Date John C. Anderson, President
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<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 157,019
<SECURITIES> 0
<RECEIVABLES> 85,473
<ALLOWANCES> 24,000
<INVENTORY> 60,146
<CURRENT-ASSETS> 283,516
<PP&E> 50,837
<DEPRECIATION> 22,018
<TOTAL-ASSETS> 352,602
<CURRENT-LIABILITIES> 68,487
<BONDS> 0
724,961
0
<COMMON> 2,058,950
<OTHER-SE> (2,499,051)
<TOTAL-LIABILITY-AND-EQUITY> 352,602
<SALES> 87,056
<TOTAL-REVENUES> 87,056
<CGS> 25,271
<TOTAL-COSTS> 314,674
<OTHER-EXPENSES> (677)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,466
<INCOME-PRETAX> (253,566)
<INCOME-TAX> 0
<INCOME-CONTINUING> (253,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (253,566)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
